The new Maryland General and Limited Power of Attorney Act, dubbed Loretta’s Law after Loretta Soustek, whose family member was convicted after allegedly misusing Loretta’s power of attorney for her own benefit, changes the way Powers of attorney are to be executed in Maryland. The new law is codified as Title 17 of the Estates and Trusts Code.
Effective October 1, 2010, any Power of Attorney executed in Maryland, with certain exceptions, must be in writing, signed by the principal (or by another for the principal in the principal’s presence and at the principal’s express direction), acknowledged by the principal before a Notary Public, and attested to and signed by at least two adult witnesses.
The new Statute authorizes both immediate and Springing Powers of Attorney. Under the new law, if a Power of Attorney is not effective until the principal is disabled, the Statute provides the mechanism for determining incapacity. In addition to physicians, the law empowers attorneys, judges or an undefined “appropriate governmental official” to make such determination.
There are two statutory form Powers of Attorney, a “Personal Financial” power of attorney and a “Limited” power of attorney, and a third party who refuses to accept such form documents or another Power of Attorney “in substantially the same form” is subject to a court order mandating acceptance and liability for attorney’s fees.
Lawyers are debating to what extent the statutory form may be modified and still be “in substantially the same form.” While the Maryland Statutory Form Limited Power of Attorney is more comprehensive than the Maryland Statutory Form Personal Financial Power of Attorney, most practitioners are using the latter as the basis to create a more comprehensive general power of attorney and still retain the attorney’s fee remedy. Lawyers have criticized the latter form for leaving out powers that are essential to the agency relationship and have been struggling to create a general power of attorney in substantially the same form as the statutory document.
Some draftsman add their desired provisions to the “Special Instructions” section of the form, but some fear that if the added provisions exceed the eight lines provided in the form the document will not comply. Others use a statutory form and a second general power of attorney, but doing so may cause confusion as to which form the client should use. Also, with two forms, would a bank be justified in not accepting either on the ground that it is not clear whether the provisions of one limit the provisions of the other? Others may draft a form that opts out of the statute, but doing so may affect durability.
The new law, like Estates and Trusts Section 13-601, which it has repealed, provides that there is a presumption of durability for powers of attorney. Such is not the case for powers of attorney to which Title 17 does not apply, however, and Title 17 does not apply to certain types of Powers of Attorney, including a Power of Attorney coupled with an interest, or one which by its terms opts out of the statute. Watch for a technical corrections bill to address this omission.
Duties of the Agent
The new Statute sets forth mandatory duties and duties which may be waived by the terms of instrument. Some draftsmen waive the duty to act loyally for the principal’s benefit (and add a gifting power) to enable a spouse to make transfers to herself under the power of attorney for estate planning purposes. Others waive the duty to keep records of transactions unless the principal is incapacitated or if a family member is the agent. The statute allows an agent to delegate the agent’s authority, and the agent is not liable for the delegee’s action if the delegee is chosen with reasonable care and diligence.
If an agent is selected because of special skills, then a higher standard will apply to that agent. In light of that requirement, if the drafting attorney is chosen to serve as the agent under the power of attorney, not because she is a lawyer, but because there is no one else the client trusts, that draftsman might consider documenting the reason for the choice lest she unnecessarily impose a higher standard on the agency relationship than otherwise would exist under the Statute.
If the Power of Attorney provides for compensation and does not state the basis for such compensation, then compensation will be “based on what is reasonable under the circumstances.” This compensation rule for an agent under a power of attorney sets forth a broader standard than the rules governing compensation of Trustees.
Thanks to the legislators who took action in response to Loretta Soustek’s plight, we now have Loretta’s Law, which sets forth new requirements with respect to powers of attorney in the State of Maryland.
William M. Gatesman is a lawyer with Michael G. Day & Associates in Hagerstown, Maryland. He serves on the council of the MSBA Elder Law Section.